The regulator has ruled that a recovered ad market and vertical integration mean LPIF contributions can be gradually reduced until it is discontinued by Aug. 31, 2014.

The Local Programming Improvement Fund (LPIF) will be phased out over the next two years, and some local television stations may face the threat of closure, after the CRTC on Wednesday ruled on the future of the industry fund for local, small-market TV stations.

The regulator said that the industry transition to digital television, increased stability due to industry consolidation and a recovered ad market mean the fund has fulfilled its purpose, and contribution to the LPIF will be gradually reduced until it is discontinued on Aug. 31, 2014.

“The fund was created to ensure television stations had the resources to meet Canadians’ needs for local programming. We are satisfied with the support is has provided during a difficult economic period,” said CRTC vice-chair of telecommunications, and chair of the hearing panel Leonard Katz.

The decision means that cable and satellite customers will also see the charge that some companies had applied to their bills eventually removed.

But owners of local conventional TV stations, like Bell Media and the CBC, say that some of their stations may be forced to close down, something that the companies gave a warning about during the review of the LPIF conducted by the CRTC in April.

The CBC, which drew more than $40 million annually from the LPIF, said Wednesday it was “astonished” by the CRTC’s decision, adding that the ruling will mean adjustments in the pubcaster’s level of service, how it delivers service, and territory that its journalists can cover.

“That’s important funding that the Corporation will not be able to replace from other sources given that it comes on the heels of a $115 reduction of its parliamentary appropriation. This will mean a big blow to viewers in the small markets that benefited from the Fund,” said CBC/Radio-Canada president and CEO Hubert Lacroix in a statement.

“Local television is a priority for the Broadcasting Act, yet this decision suggests that it is not important to the Commission. This decision is sure to reverse many of the local programming improvements that the Fund achieved, because the rationale that led to the LPIF’s creation still exists today: the financial model for local television continues to be challenged. Two years from now, when the Fund disappears, we’ll be back to where we started when the CRTC decided to create the Fund,” he added.

For its part, Bell Media, which had argued back in April that without LPIF funding, 10 of its 19 stations would have been unprofitable, and that some local BCE TV stations would shutter if the fund was cancelled, insisted that the conventional TV market continues to face uncertainty.

“We’re analyzing the new model and its financial impact on Bell and Bell Media. There’s no doubt, however, that local stations in small and medium-sized markets will receive significantly less revenue. At a time when conventional television continues to be under tremendous financial pressure, including from a soft advertising market, which continues to suffer from cyclical and structural downturns, this is obviously a major concern. It reinforces the very real need for a secondary revenue stream if we expect the quality and quantity of local programming to continue – specifically, value for signal,” said Bell EVP and chief legal and regulatory officer Mirko Bibic in a statement, in response to the CRTC’s Wednesday ruling.

The CRTC first created the fund in 2008 to help television broadcasters in non-metropolitan markets provide a diversity of local programming, and improve quality and diversity of local programming in these markets during the recession.

The Commission increased financial contributions from licensed BDUs to Canadian production from the required 5%, with the additional contribution (1% in 2008) directed to the LPIF.

Since the 2009-2010 broadcast year, Canadian BDUs have contributed 1.5% of their gross revenues to the LPIF.

In 2010, 78 stations received a total of $100 million in funding; in 2011, 80 stations received $106 in funding; and by the end of 2012, the LPIF will have distributed more than $300 million to more than 75 local stations throughout the country, according to the CRTC.

As part of Wednesday’s decision, the regulator ordered that cable and satellite companies must prepare a report outlining how they will reduce affected customers’ bills, and provide evidence that customers have been notified, to be submitted to the CRTC by Sept. 17.